Nautilus will normally just copy, unless you tell it to compress, which is probably what you have done accidentally.

The file is a file and not a directory, Nautilus can just display the contents of the file as if it were a directory. So open the file, and drag the contents to a real directory, e.g. one that you made under Windows before booting in Ubuntu.
The chmod command has no influence at all on the contents of the file as you already noticed, (older versions of) Windows cannot read such files compressed archives, and have a hard time when the proper extension is missing.

I would not remove the gzip archive file until you have verified you have viewable copies of the images somewhere.